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Monday, 22 April 2013

The London gas industry in the 1880s.

The
co-partnership scheme set up in the South Metropolitan Gas Company in 1889 needs to be examined against the background of the industry from which it came and in
particular the history of that industry in London.

The London Gas Industry was
the first to be set up and it was in London that coal gas was first exploited for commercial gain
through sales to the public.

South Met's profit sharing scheme of 1889 links a bonus for workers
directly to the price of gas. Gas prices at that time were governed by a
mechanism linking them to profits and known as the 'sliding scale'. This system
of price and dividend regulation was controlled by statute and they were linked the two
so that as one fell the other rose. In the bonus system
wages were also tied to the price of gas and like the dividends rose and fell according
to variations of price. It is thus apparent that this mechanism provides a built in incentive for the
workforce to help to reduce price through efficient working. This was George Livesey's 'big idea'.

Throughout
the middle years of the 19th century politicians and public utility companies had worried about the relationship of price and
efficiency to management, control and ownership. If a gas company seemed more concerned with high profits then a consumer pressure groups would bring-this to the attention of
government. The main consumers of 19th century gas were local authorities buying gas for street lighting.

'Public'
concern in the early days of gas manufacture had concentrated around safety and
subsequently efficiency of supply. Solutions were put forward which tried to make shareholders more accountable to the public. Thus municipal ownership had grown - but outside of London. Public ownership
was still a matter for discussion in London in 1889.

From their earliest days
the companies which manufactured coal gas were tied up with the local authorities. Vestries and other local authorities were given the power to levy a rate
for the purpose of street lighting in 1736 and used oil
lamps as the main available source of light. Gas Lighting from around 1813
provided a more convenient alternative.

T

he
supply of gas for lighting became a goldmine for those who were more interested in
making money quickly than in providing a service to the public. Some early gas companies had origins of a very doubtful nature.

The first
company in London - indeed in Britain - was the
Gas Light and Coke Company, also called 'The Chartered'. In 1810 they obtained a statute to light London and found customers in the vestrymen
of City wards anxious to improve street lighting. The Company recruited Samuel Clegg to run their works - his influence was such that in 1877 George Livesey was able to describe the gas
industry then as 'much as Clegg left it'. Early gas manufacture
did not remain unregulated for long=it took only the first few hints of smells
and explosions for public concern to manifest itself about the manufacture of
such a dangerous substance in city centres.

By
the early 1820s governments were starting to find methods of regulation. Gas companies needing new statutory powers to open up the streets were required to
fulfill conditions imposed on them by the authorities. There was a however also a
belief that Companies should be left to pursue their own methods in
a competitive market and that in this way they were likely to serve the public
more efficiently while a degree
of control was necessary.

One example of control of gas companies by government policy was
in 'districting agreements'. Companies
who could limit their activities to one geographical area, and keep others out,
could enjoy the advantages of a monopoly. By the mid-1850s voluntary agreements
of this nature had been entered into by most companies.

In his evidence to the
1899 Select Committee on Metropolitan Gas Companies George Livesey said most
of the companies prior to the districting of the 1850s were in
'a more or less unsatisfactory condition'. He referred to the situation where rival companies supplied customers in the same areas leading
to the necessity for mile after mile of duplicate mains - with attendant holes
in the road together with leaks and damaged mains. Some companies encouraged
employees to connect their own customers to other companies' mains, or damage
their mains in some way - and in at least one case pitched battles between
rival gangs of navvies ensued. District agreements ended all that.

Governments
could chose between the monopoly
position created by districting agreements or disruption engendered by free competition. One response was to challenge the ownership of
companies. It was argued that a service paid for mainly by public authorities should
not be dedicated entirely to private profit. A solution-was attempted in the
setting up of 'consumer' groups which proposed a different form of ownership.

A

t
first proposals were put forward for 'consumer' ownership of the mains and this
was followed by the setting up of special 'consumer' companies. These differed
very little from the ordinary statutory private company except that they pledged
themselves to act for the consumers who would be their shareholders. They
guaranteed a fixed low price. Through their company meetings shareholders would
ensure that the pricing policy was adhered to. Consumer companies were set up
in many parts of the country - two in the metropolitan area - the first sponsored by the City of London.

In South London
by the 1860s the main gas companies were The Phoenix, covering Southwark, Deptford and Greenwich and the very much smaller South Met. covering Peckham and Camberwell.

The Surrey Consumers Gas Light and Coke Company was set up with a works in
Rotherhithe to challenge the two main South London Companies. Prices fell
very quickly following the establishment of the consumer company and as the
established companies lowered their prices to meet the competition.

However,
once prices went down customers stayed with their original
company and the consumer company was unable to get enough customers to survive and keep its prices down. Very soon negotiations
with the established companies were opened on 'districting' for
and the consumer companies were in effect become no different from the existing
commercial concerns they had been designed to replace.

As
consumer companies began to demonstrate that they were no different
from the ordinary private companies so local authority ownership of works was seen a solution and new statutes to commercial companies they began to include clauses which allowed for possible
future acquisition by the local authority. These clauses purely came from a desire to keep the rates down.

Municipalisation of existing works and the erection of
new ones by local authorities proceeded outside London. Following the
Municipal Boroughs Funds Act of 1872 which allowed ownershp without a statute
municipalisation increased. Silverthome (1881) lists sixty towns where gas
works were municipally owned but London companies remained in private hands. This failure to municipalise in London was directly because of the lack of a central authority in the capital.

Until 1855
control of lighting in London lay with a multiplicity of vestries; central authority was
represented only by the Metropolitan Board of Works
with its limited powers. Action could not take place without the consent both the vestries and the board - plus, of course, the City Corporation. Chatterton has suggested that gas companies were
amongst the bodies most opposed to the setting up of a strong central London local
authority.

By the late 1850s informal 'districting' agreements on areas of supply had been
established to cover most of London - and these were ratified by Government in
the 1860s. Problems of gas pricing and the right of companies to make profits
from the public purse occupied politicians through
the succeeding years. A solution was also sought whereby the public
interest might be reconciled with those of private Companies.

In
1899 Harry Haward, then Comptroller of the London County Council gave evidence to a Select Committee into Metropolitan Gas Companies. He said
'legislation in 1860 proceeded on the idea that companies should have 'a
reasonable prospect of attaining from time to time with due care and
management the maximum dividend'.

In 1874 the City Corporation and the Metropolitan Board of Works submitted three bills:- 'the first bill
was for the purchase of the companies, the second bill was for the
establishment of a competing supply - and the third was for a regulation bill'.

The
first two of these bills were eventually dropped and the situation resolved in another
series of measures designed to regulate gas prices and to ensure some sort of
efficiency in working. The situation in London had thus become one whereby gas companies used their influence to oppose what they saw as attacks on their
independence by local authorities representing consumer interests. Mediation
took place through the Board of Trade.

At a the Select Committee into Metropolitan Gas Companies of 1875 officials from
the Board of Trade produced George Livesey who gave evidence in favour of what
became known as the 'sliding scale'.

Livesey
was at that time an employee of the South Met. Co. and his appearance was
against the policy of his employers. Although he protested that he had spoken
'under Speaker's Orders' - that is he had been required to come - some parties
in both South Met. and other companies called for his dismissal.

In his evidence to the Committee Livesey said: 'It
should be possible to form a scheme for embodying in a general act, that should
make the consumers in a sense partners in the gas company, whereby both should
participate in any improved or more economic working '.

'Partnership' was thus a
recurrent theme of Livesey's, one on which he had already spoken publicly in
the context of gas management, and one on which he was to enlarge greatly once
the co-partnership scheme had been set up. In this context it relates entirely
to the sliding scale of gas pricing.

It
is almost impossible to underestimate the importance of the sliding scale both
as a partial solution to the problems of the gas industry in London but also in the context as a recurrent theme of Livesey's. It became a
touchstone to which he could return and refer back as the basis on which the
whole edifice of his scheme was built.

The sliding scale in the gas industry in
the 1870s had no relation to sliding scales in other industries - except in so
far as it was an automatic system which tied profit to price. It was designed
to separate control over these elements from Government control. In 1875 a
letter had been sent from the Board of Trade to the Chairman of the Select
Committee on the Metropolitan Gas Companies, which outlined several important
points of principle. 'it would seem a priori at least doubtful whether any
Government Department or official commissioners ... can succeed in dictating to
a trading company the terms and conditions of manufacture on which they can
make the. greatest amount of profit'. Any scheme devised should be independent
of Government and yet able to guarantee responsibility in terms of price and
efficiency while satisfying the need for the incentive of profit.

The
sliding scale was seen as a solution to this problem. It was automatic once a
base line had been set by the Government, to provide an incentive to lower prices while efficiency in working grew. To quote Livesey again in 1899: 'if it
be distinctly in the interests of the company to serve the customer then the
customer will be served'.

This suggestion from Livesey provoked a great deal of
hostility from the existing gas companies - including South Met. Nevertheless
it was adopted and gradually incorporated into new statutes as companies
applied for them and it became working practice.

In the succeeding decade it came to be believed that more efficient gas company working could be
achieved by fewer but larger companies. To this end both Government and
companies began to promote schemes of amalgamation between companies and by the
early 1880s London's nine gas companies had been reduced to three. As part of
this movement Gas Light and Coke Co. - which had by then
subsumed most of the other companies north of the Thames - in
1872 built the giant Beckton works as a central supply point for much of their
area.

Eventually a scheme was set up by Livesey aiming to unite both north and south
London and this would have gone ahead had it not been prevented by the Board of
Trade.

South
Met. by then controlled the whole area south of the river, following amalgamations
with Phoenix, Surrey Consumers and two small companies in Woolwich.
Efficiencies of scale had not always followed amalgamations and South Met's low
prices and reputation for high quality had not been copied in north London. Gas
Light & Coke Co. were now obliged under their statute to set their prices
by the standard of South Met's current charges. South Met. had no such measure
to set themselves by and were thus assumed by Government to be achieving prices
as low as could possibly be set.

However both City Corporation and Metropolitan Board of
Works continued to consider the basis of a publicly controlled supply of gas.
Farrier of the Board of Trade speaking in 1876 said: 'the day will come when the gas
companies will be bought up by the municipal authorities. I am not going to
sanction any further increase in capital... I will do what I can to prevent the
public ... when they buy them up to pay an inflated price ... for those premiums
that have gone into the pockets of the shareholders.

Thus
civil servants believed they should could safeguard ithe public
purse in the event of future political action. That action was anticipated but
never happened. J. Beal the
later Progressive Member for Fulham in the first session of the LCC put forward purchase of the existing Metropolitan Gas
Companies as a source of indirect taxation and an anonymous pamphlet of 1878
echoes this - gas works profits could be used to subsidise
other public services and keep rates down. E. Dresser-Rogers is quoted in an
address to the gas companies of the City of London, in 1864 as having said that
'a monopoly to supply the public with an article of necessity should belong
to the public'

These
ideas found expression in 1876 in J.B.Firth's Municipal London which devotes a
chapter to the moral necessity for public ownership of gas and paints the
vision of a city such as London entirely directed in the public interest. These
ideas were eventually taken up in the 1880s by various progressive
groups and eventual expression was found in the early
days of the London County Council.

The London County Council as the first
strong and united Local Authority in London first took office in 1889 and
striking gas workers in that year were quick to point out to Livesey that:
'this company will be transferred to the County Council for the benefit of
London'.

One
of the first actions of the LCC in March 1889 was for Councillor Beal to call
for an officers' report on the practicalities of municipalisation of London's
gas and water supplies. It was however felt that the case for gas
muncipalisation was 'weak' and that part of the report was not proceeded with.
The cause of municipalisation of gas by LCC was seen as one of the calls from
the 'left' - the great John Burns mentioned it regularly and described the London
industry as 'moribund'.

Public
ownership was seen merely in municipal terms - ownership
by national government was not considered. The London gas companies behaved in ways which
would have been expected of them - they opposed bills put forward to regulate
them and tried to prevent public ownership being seen as a solution. Companies
gave money to political groups which were opposed to public ownership. In 1899 the South Suburban Company, of which Livesey was Chair,
gave donations to the Liberty and Property Defence League. In 1889 Livesey was involved in
alternative forms of worker's politics - he was helping to set up "The
Workmen's Association for the Defence of British Industry' - as an attempt to
find channels which would support the defence of capital.

This brief
description of the political background to the gas industry in the nineteenth
century must be extended by an explanation of some technical changes. In the
1880s gas was becoming more widely used by ordinary people as a means of
cooking and lighting. Prepayment meters were introduced, in London by South Met.
Companies were anxious to extend their sales to
working class customers and arrangements were made to install free appliances
and to make special arrangements for lodgers. It is significant that South Met.
in the early 1960s was responsible for changes in the calorific value of the
gas it sold in order to make it more suitable as a heating and cooking medium -
rather than lighting. Other promotions in this field led to exhibitions of
gas appliances - like the one at Crystal Palace in the early 1880s - and
demonstrations of gas for cookery, and the opening of gas showrooms.

Men
like Livesey, who were managers in the industry in this period were anxious to
be seen as professionals. They saw a difference between themselves and those
who manufactured appliances. They were anxious to be seen as professional men in
the public service with technical rather than business expertise.

Competition
was being experienced from the electricity industry. For many years gas had
sold by-products. Coke sales were an important part of any
company's economy and these were joined by numerous chemical products.
The gas industry in the last decades of the 19th century and the first of
the 20thj put up a tremendous fight against electric competition for the
lighting contracts. The pace of innovation and invention of gadgets and devices
that would rival electricity was enormous. The gas industry was changing

One
company was outstanding in its attempts to meet that change. That company was
South Met. We must look closer at this modest London company which made such
efforts to meet both technical and political challenges, and attempted to involve
its workforce to identify with it in these challenges.

ReferencesRostron,
Laurence, W.S. - Powers of Charge of the Metropolitan Gas Companies. A history
of the question of price in London from the introduction of gas lighting to the
year 1899. 1927. (Rostron
was a South Met. Director and eventually a member of the LCC in the Municipal
Reform interest. The book is entirely concerned with the effects of government
action on the
changing price of gas - and is an apology for South Met).

W.J.Liberty
- The History of Gas Lighting. 1921 (Liberty
was a South Met. employee).

Chandler,
Dean - Outline of the History of Lighting by Gas. 1936. (Chandler
was a South Met. employee.)

Report
of the Select Committee on the Metropolis 1875.

Minutes
of the Evidence taken before the Committee on the Gas Companies (Metropolis)
Bill. 1860.

Report
from the Select Committee on the Gas (Metropolis) Bill 1860

Report
from the Select Committee on the Metropolitan Gas Companies 1899. Minutes and
evidence. 1899.

Harry Haward. The London
County Council from Within Everard,
Stirling. The History of the Gas Light and Coke Co. 1812-1949 1949.

D.A.Chatterton,
State Control of the Public Utilities in the Nineteenth Century: the London Gas
Industry. Business History Vol XIV No.2. July 1972.

M.E.Faulkus,
The British Gas Industry before 1850. Economic History Review. XX Second Series
1967

Journal of Gas Lighting
Arthur Silverthorne. The Purchase of Gas and Water Works, with the latest
statistics of Metropolitan Gas and Water Supply. 1881.

Minutes Metropolitan Board of Works

J.B.Frith. Municipal London, or London Government as it is and London
under a municipal council. Longmans & Co. 1876.